The Bank of England has cut the base rate by a quarter point to 4% from 4.25% as widely expected, taking the cost of borrowing to its lowest level for more than two years.   

Rate-setters on the Bank’s nine-member Monetary Policy Committee voted 5-to-4 in favour of making its third rate cut this year and the fifth since last August.

This takes the interest rate to its lowest since March 2023. 

MPC minutes released today say that external member Alan Taylor voted for a quarter-point cut, but would “have preferred” a half-point reduction. 

In the year to June, inflation rose to 3.6%, partly due to higher food and clothing costs, as well as rising prices for air and rail travel. This is above the Bank’s 2% inflation target. 

MPC minutes add: “There has been substantial disinflation over the past two and a half years, following previous external shocks, supported by the restrictive stance of monetary policy.  

“That progress has allowed for reductions in Bank rate over the past year. 

“The committee remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to its 2% target in the medium term.” 

Bank of England governor Andrew Bailey has said he favours a “gradual” approach to base rate cuts, with the markets expecting one further cut to interest rates this year. 

However, Bailey will update the MPC’s view on the economy to the market later this afternoon. 

MPC vote: 

Five members — Andrew Bailey, Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor — voted to reduce Bank rate by 0.25% to 4%. 

Four members — Megan Greene, Clare Lombardelli, Catherine L Mann and Huw Pill — voted to maintain Bank rate at 4.25%.